Global Scramble To Sell India Military Hardware
Dated 30/8/2007
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India is developing a military appetite to match its growing economic power, and defense contractors are scrambling to profit. As the country overhauls its largely Soviet-era military arsenal, it could spend as much as $40 billion over the next five years purchasing everything from artillery to submarines to tanks, analysts estimate.
In particular, American defense contractors are now aggressively pursuing bids after decades of Cold War alliances and sanctions kept India off limits. In terms of "potential for growth, India is our top market," said Richard Kirkland, the Lockheed Martin president for South Asia.
Whether American defense contractors can turn that potential into profits will depend on how they meet a host of challenges, including competition from other Western suppliers and, especially, Russian companies.
The Indian spending spree kicked into high gear this week when the Ministry of Defense called for bids to fill an order for 126 fighter jets, a contract worth 420 billion rupees, or $10.2 billion.
Anxious to create a domestic defense industry, India is requiring foreign suppliers to match any bids they win with a sizable commitment to manufacture goods in India. In the case of the fighter jets, the winning bidder needs to promise to produce components here worth half the jets' price. American companies are now busily pairing up with locals.
So far, most of these partnerships are in the earliest stages, little more than agreements to collaborate on future projects. Raytheon and the electronics division of the Indian giant Tata Power signed an agreement to cooperate on unspecified future projects in February.
The same month, Boeing made a similar agreement with the Indian engineering firm Larsen & Toubro to develop new projects. And Northrop Grumman signed on with the Bangalore firms Bharat Electronics and Dynamatic Technologies to investigate joint opportunities.
Indeed, the interest in India goes beyond the weapons. In addition to defense, India has booming markets in civilian aviation, shipping and infrastructure, providing opportunities for the logistics and security units of American defense companies.
Walter Doran, president of Raytheon Asia, and a former commander of the U.S. Pacific Fleet, predicts that India may be "one of our largest - if not our largest - growth partner over the next decade or so."
The hefty increase in military spending reflects India's changing view of itself. India, like "all aspiring nations, is seeking its place on the world's stage," Admiral Sureesh Mehta, the Indian Navy chief of staff, said at a conference of naval officers in Delhi in July.
India is positioning itself as a policeman of nearby waterways, particularly the Indian Ocean. "If you look at the rim from West Asia to Asia Pacific, that entire area accounts for over 70 percent of the traffic of the petroleum products for the whole world," Sitanshu Kar, spokesman for the Defense Ministry, said. "We have a role to play to ensure that these sea lanes are secure."
Some items on the Indian military's list signal an Indian desire to play a greater role beyond its shores. For example, the Indian Navy purchased the amphibious transport ship Trenton from the United States and renamed it the Jalashva. The Jalashva operates helicopters that can be deployed to evacuate Indian nationals from a foreign country, to deliver humanitarian aid, or to intervene militarily in conflict zones.
India is virgin territory for U.S. defense companies. Decades of Cold War-era distrust, when India aligned itself with the Soviet Union, followed by sanctions that President Bill Clinton passed after India tested nuclear weapons in 1998, made India a no-go area for American companies.
Under the administration of President George W. Bush, sanctions have been lifted and military ties have deepened. Joint exercises between the United States and India are at an all-time high.
In July came what has been widely described as a turning point in Indian-U.S. relations, when the two governments announced a controversial civilian nuclear energy agreement. The deal signals the Bush administration's commitment, made two years ago, to "help India become a major world power."
Despite the closer political ties between Washington and New Delhi, many defense industry analysts say winning big orders in India will be a slog for the Americans.
In many cases, United States companies will compete directly against India's traditional supplier, Russia, which already has manufacturing agreements in place here.
Russia is still India's principal arms supplier, and is in negotiations for some $10 billion in contracts, including a countrywide air defense system.
"The Russians are going to get quite a bit of this business," predicts Andrew Brooks, an aerospace analyst at the International Institute for Strategic Studies, which is based in London.
The U.S. Congress could present another hurdle for U.S. companies. Lawmakers could prohibit the sale of the most advanced military equipment, Brooks said.
European defense companies are also making inroads: BAE Systems signed a deal in 2004 to supply India with 66 Hawk training aircraft, and plans to build two-thirds of them in India.
But the American military and U.S. companies are winning some deals. Lockheed Martin is in final negotiations to sell India six C-130J Hercules cargo planes for $1 billion. It will be the largest American military sale to India to date.
The $10 billion jet order is attracting many of the world's biggest defense players. The Indian Defense Ministry has asked Lockheed Martin and Boeing to bid, as well as Saab, which makes the Gripen fighter, and the European team building the new Eurofighter jet. They will all bid against the Russian Aircraft Corporation, known as RAC, which owns the developer of the MiG fighter jets the Indian Air Force operates now.
While U.S., European and Israeli companies and governments are openly announcing their desire to compete for India's business, the Russians have been more discrete. At the recent Delhi naval conference, Western companies took out booths, sponsored meals and cocktail hours, and had dozens of their name-tagged employees working the crowd. Several representatives from the United States military also attended. But a Russian presence was hard to find.
Major General Alexander Burov, the military attaché for the Russian Embassy in New Delhi, said that he could not comment on any commercial deals. Burov did make a point of noting that the chief of Russian land forces had recently visited India, stopping in Agra and Goa. Several calls and a fax to another number at the embassy that Burov had said could answer questions about defense orders were not answered, nor were calls to the New Delhi number for RAC.
In some corners of the Indian military, officers are split by age between pro-American and pro-Russian technology, according to American officers who have regular contact with Indian officers. Older servicemen are likely to pull for buying from Russia, younger servicemen for buying from the United States, they say.
United States companies have no illusions about their Russian competitors. Randy Belote, a spokesman for Northrup Gruman, said: "It's difficult to unseat an incumbent."
By Heather Timmons and Somini Sengupta